Crude Economics
Shale Worries Rise as Oil Prices Fall
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  • Kevin

    I think the US ought to put in place a variable protective tariff on oil, something like 3/4 of the difference between the spot price and $100 per barrel.

    This would provide price stability for domestic producers and prevent them from being run out of business by swings in price. Such a tariff would also modestly reduce the world price of oil (by reducing US demand for it to the extent the price dropped be the floor) and potentially deprive hostile regimes of some of their revenue.

    Any revenue collected could be returned to taxpayers by a dollar for dollar offsetting reduction in payroll taxes to maintain aggregate demand and prevent it from being a regressive tax.

    Even if the floor (say $100) was never breached after the variable tarrif policy was implemented, it’s mere existence would make it easier for drilling firms to raise capital by reducing threats of extreme pricing volatility.

    Oil prices are in large part determined by political factors rather than purely economic factors. To let American oil producers be driven out of business by relatively short term swings in international pricing driven by foreign governments seems foolish.

  • Jacksonian_Libertarian

    I’ll put my money on the American shale oil companies as being better able to compete over the state owned oil monopolies any day. Most of these state owned oil monopolies are operating their entire governments from the profits on oil, when these go down they will suffer drastically. Sure some like Saudi Arabia have low costs of production, but they are also paying billions to Egypt and welfare programs and the Royal family of thousands, in addition to all the state functions. These things will all face cuts before American shale oil companies have to take serious cost cutting measures. Also American shale oil companies already have structures in place to improve well production and cut costs, something the stagnating and decaying state owned oil monopolies don’t have. Recent graphs on this blog show the skyrocketing increases in well production and there is every reason to believe this will continue until the increases begin to slow.

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